Comment

Abstract

During the COVIDpandemic, governments undertook large fiscal interventions—initially to support households and firms during mandated shutdowns and then, as the need for social distancing abated, to revive economic activity. Beginning in early 2020, the US government passed a sequence of bills to provide COVID support, totaling some $5.8 trillion and increasing the federal debt to gross domestic product (GDP) ratio from 107% in 2019 to 136% in 2021. Governments in Europe similarly enacted an ambitious set of fiscal policies, including an expansion of social safety nets, loan guarantees to firms to protect workers and jobs, and expanded flexibility in national and local debt limits. Over the same 2019– 21 period, euro area government debt increased from 84% to 96% of GDP (International Monetary Fund, n.d.). The debt figures for the euro area as a whole mask large differences across Europe, as the countries hardest hit by the pandemic (such as Spain and Italy) saw debt increases comparable to that of the United States. Relative to the United States, European governments tended to provide more above-the-line support such as loan guarantees, whereas US fiscal interventions relied more heavily on direct transfer payments to individuals. The focus ofAggarwal et al. is the transmission of these unprecedented, COVID-related fiscal expenditures across the set of advanced economies. The paper argues that debt-financed transfers during COVID resulted in predictable changes in the current account that persist over time. Countries that made larger-than-average transfers tended to run current account surpluses, whereas those below the average ran deficits. In the